Property tax relief is on the minds of lawmakers and taxpayers around the nation. Frequently, reducing the residential property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. burden is the priority and often comes at the expense of raising taxes on businesses and commercial properties. However, in 2025, the Texas legislature sought to make the state more competitive for small businesses by exempting a greater amount of business personal property from taxation, reducing compliance burdens at the cost of a trivial amount of revenue.
Currently, the Texas Constitution allows the legislature to exempt personal property held or used to produce income from ad valorem (property taxes) provided the property has a taxable value below the minimum costs of administering the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities., considered to be $2,500. If voters pass Proposition 9, the constitution will allow the legislature to exempt $125,000 of the market value of the same property. This change represents sound tax policy and would benefit small and mid-sized businesses without sacrificing property tax revenue.
As we have noted previously, imposing taxes on business personal property, also known as tangible personal property (TPP), is unsound because it penalizes investments in productivity and business growth. Additionally, these taxes create significant deadweight loss, as the tax liability is often low compared to the excessive cost of compliance. TPP taxes require businesses to catalog each item of equipment, machinery, fixtures, and other tangible personal property, and track acquisition dates, costs, and depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco. All this requires significant work but generates little revenue for local governments. Unlike larger enterprises, small and mid-sized businesses do not have the staff or the bandwidth to efficiently comply with TPP taxes, making an inefficient tax even more onerous.
A 2015 study in Connecticut found that a $10,000 TPP exemption would exempt 46 percent of all businesses while only reducing property tax collections by 0.014 percent. A $200,000 exemption would eliminate taxation for almost 90 percent of businesses while only reducing property tax collections by a small fraction of a percent.
Other states have set the precedent. Indiana increased its TPP exemption from $20,000 to $40,000, eliminating filing obligations for 28,000 businesses while only decreasing revenue by a modest $4 million. Rhode Island recently raised its exemption to $50,000, removing over 70 percent of businesses from the TPP tax roll.
Texas boasts a competitive tax code and is a leader both regionally and nationally. Increasing the TPP exemption is a sound policy choice that will support Main Street businesses with little impact on local government revenues.
While a $125,000 exemption would not be the highest or the most generous in the country, states like Arizona ($500,000), Idaho ($250,000), Indiana ($1 million), and Montana ($1 million) offer Texas a road map to an even greater exemption, or outright elimination of the tax in the future. Nevertheless, the legislature’s attempt to reduce compliance burdens is commendable and will keep Texas among the most competitive places to live and work.
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